Five years after the Wall Street crisis and it’s still no stretch of the truth to say that we live in uncertain financial times. All areas of American life have been affected; small businesses, major financial institutions, and millions of Americans have been forced to close their doors and move on.
Though we hate to hear it, big banks have had a hard time during the recession as well. Year after year banks have faced an onslaught of regulatory issues. Many required bailout money from the Federal Government, only to be implicated in the robosigning scandal of foreclosure documents, and ultimately forced to agree to a $25 billion settlement for their role in the mortgage crisis. In the midst of all these blunders, banks have lost the public’s trust and a lot of their business.
But banks need to make money, because that’s what they do. At first, they tried raising transaction fees on debit card and credit card transactions, before the Federal Government once again stepped and passed the Durbin Amendment to regulate transaction fees. Trapped in a well of dwindling profits, banks have had to scrum up extra cash wherever they can, namely by raising prices on their checking accounts and overdraft fees. Some banks have even started offering their own cash advance loans to compete with payday loans – for which they’ve also received scrutiny.
A new report by Moebs Services, an independent economic research firm, looked into the cause and effects of mounting bank fees and charges. Moebs discovered that banks reeled in $32 billion in extra fees and charges in 2017, an increase of 1.3% over 2016.
Over a quarter of all Americans who have a checking account overdraft their account frequently. According to Moeb’s study, more than half of these people who overdraft regularly use payday loans in order to pay off their bank debts. The study shows that payday advance loans are actually significantly cheaper than taking the bank fees, or accepting a short term advance from a bank or credit union.
State and local governments need to realize that in many cases payday loan products are sometimes an individual’s best or only option to get the money they need. Instead of trying to find ways to shut the industry down, legislators need to be searching for ways to help the industry flourish, while driving down costs and setting up safety nets for consumers.